Reason To Invest In Industrial Real Estate

Are you contemplating the addition of industrial real estate (IRE) to your portfolio? If so, it is prudent to consider private real estate investing. This type of investment provides access to a variety of potential IRE investment opportunities without the direct ownership and management duties. Typically, the risks are lesser than when investing on your own.

However, like with any other investment, it is prudent to weigh the advantages and downsides of investing in Industrial Real Estate For Sale. When you conduct simple acts of due diligence and market research, you can land the gorgeous swan instead of the ugly duckling.

What is Industrial Real Estate?

Most people associate real estate with the places where they spend their time: their homes, offices, favourite retail store, or favourite restaurant/bar. However, when they hear "industrial real estate," they may conjure up images of massive brick chimneys spewing foul-smelling smoke or a GM factory assembly line with computer-assisted machinery putting cars together.

This image may relate to some aspects of industrial activity, but industrial firms as a whole go much beyond this picture, working behind the scenes of all these high-traffic areas and essentially providing the fuel that allows them to function.

Toilet paper, food, clothing, and practically every other item in your house, office, or favourite retail store was once manufactured or stored in an industrial structure, so it's simple to understand how important industrial firms are in our daily lives.

Exact Definition of Industrial Real Estate

All land and structures that accommodate industrial activities such as production, manufacturing, assembly, warehousing, research, storage, and distribution are referred to as industrial real estate.

Each city has defined areas for industrial properties, which are depicted on a zoning map and describe where these spaces can be built and operated so that the activity on these sites does not interrupt companies or residences that might be located nearby.

These zoning rules get even more precise, stating which industrial activities are permitted and which are prohibited. The industrial sector has many different facets, and because this definition encompasses a wide range of properties, it's important to understand the differences between each type of industrial property before deciding which one to invest in, so you can fully understand the risks and rewards associated with each one.

First, we will examine the five most prevalent categories of industrial real estate.

Five Common Forms of IRE

1.Flex/office space: used for product research & development.

2.Facilities for light manufacturing: the production of a variety of goods for retail consumers and companies.

3.Facilities that manufacture and process foods and beverages for restaurants and supermarkets.

4.These facilities are used to store and transport food and beverage products to restaurants and supermarkets.

5.Warehouses are essential for the distribution of items to retail stores and businesses, as well as the operation of e-commerce businesses.

Many individuals question if industrial real estate is a wise investment. Let's examine why investing in industrial real estate can be advantageous for some and why it may not align with the financial objectives of others.

The Pros

Demand is increasing

It is estimated that the United States will require more than 1 billion square feet of extra warehouse space by 2025 to meet the rapidly expanding e-commerce demand. This forecast indicates that expansion and development prospects for real estate investors will increase.

Longer Rental Terms

Typically, industrial leases are for three to ten years, although they can extend up to 25 years. In contrast, residential contracts are for one year, but self-storage units are rented month-to-month. Industrial real estate entails dealing with businesses rather than individuals. This results in lengthier leases, as businesses are less likely to relocate frequently. It is not uncommon for industrial real estate investors to lease their property to the same company for decades. This indicates that industrial buildings typically produce a consistent and passive income for many years.

E-Commerce Friendliness

In 2020, online purchases increased by 46%, which contributed to the rise in commercial real estate. In reality, Amazon and other e-commerce fulfilment businesses currently account for almost 40% of industrial property rents. This number is growing as more brick-and-mortar businesses incorporate e-commerce into their business structures. This development has resulted in a high demand for warehouse and distribution space around the United States, as an increasing number of merchants choose fulfilment centres to traditional retail space. Due to the necessity for new server farms to support online commerce, tech companies are also responsible for the surge in demand for warehouse and industrial space.

Reduced Maintenance

Industrial properties require less maintenance than commercial properties. The majority of leases are triple net, meaning that tenants are responsible for maintenance. With longer lease terms and fewer tenant turnover, an industrial building owner will not need to update their premises as frequently.

Variety

Industrial real estate is comprised of a range of property categories, including those listed above. Typically, industrial buildings are leased plain and vacant. This allows any firm to rent the building and more easily configure their procedures and equipment. This contrasts significantly with residential real estate alternatives.

Financial Stability

Industrial real estate is typically more resistant to economic downturns than other property kinds, despite the fact that every investment carries some degree of risk. It is vital to note that properties tend to maintain or even increase in value over time.

The Negatives

Tenant Risk

While having a long-term, steady tenant is a benefit, there are also disadvantages. For instance, if the tenant experiences financial difficulties and is unable to pay rent, the investor must still honour their loan commitments.

Long-Term Risk of Vacancy

After a lease expires, it might be difficult to find a new tenant. For instance, if a tenant vacates a purpose-built industrial facility, such as a manufacturing building, the owner may need to invest significant resources to make the property suitable with new tenants and their various industries.

Oversupply Risk

As previously indicated, the expected future need for warehouse space has led to the construction of fulfilment centres by numerous real estate investors. If an excessive amount of this industrial property type is built and the market weakens, it could have a substantial influence on occupancy and rental rates, as well as property values.

Less "Flipping"

The long-term nature of industrial real estate might be disadvantageous for investors that favour rapid returns and flips.

Less Availability

Fewer industrial buildings are available for sale than residential dwellings. To identify the ideal home, you must conduct significant study in a particular market, or you can widen your search to other markets.

Is there a long-term demand for industrial real estate?

The growth and demand for industrial properties has been unparalleled in the year 2020, and it will continue to rise through 2021. Industrial property rental rates have climbed from 1.60 per sqft to 1,80 per sqft, with a high of RM 2 per sqft.

As a result, numerous businesses are venturing into industrial property development. The trend may be seen in recent mega warehouse investments in Malaysia, such as the one million square foot Ikea regional distribution and supply chain centre in Pulau Indah and AREA Logistics' 1.5 million square foot warehouse in Ampang. Hap Seng Industrial Hub in Shah Alam will complete a 20-acre industrial facility with 1.38 million square feet. The Galaxy Logistic hub in Puncak Alam has 1.5 million square feet of available space. Aspen Group recently purchased 71 acres of industrial land in Shah Alam Seksyen 16. As a result, industrial space will be plentiful in the next five years.

Many new start-ups for e-commerce, logistics, and glove manufacturing enterprises have entered the sector of renting or investing in industrial premises as a result of our efforts. The vast majority of them are benefiting from the pandemic's economic boom. What happens after the pandemic is still an open subject. Is it possible for some of the newly established glove producers to be profitable? Is the market capable of supporting a big number of logistics and e-commerce firms?

Industrial land is expensive to buy, and development costs are high.

Due to the continued inflation of industrial land costs as a result of scarcity in prime areas and state and local government control, industrial developers will need to continue to invest a significant amount of money in the building of warehouses and factories. Building materials have risen dramatically in price over time.

The unprecedented pandemic has made it difficult for construction companies to find foreign labour. There's also a hidden cost, such as the COVID-19 screening test. Movement control orders (MCO) issued by the government have caused delays in the completion of factories and warehouses. This has increased costs, created inefficiencies in time, and created uncertainty, all of which are costing industrial real estate developers money.

The Conclusion

Although many people view industrial real estate to be less glamorous than other sorts, it is essential to the economy. Long-term leases provide investors with predictable cash flow and sustain the commercial sector's economic activities. With the forecasted development potential of the industrial sector in the next years, real estate investors will not want to overlook this crucial property type.

Investing carefully in industrial real estate can be a prudent financial choice. You must entrust your money to experts who: Industrial Malaysia.

I hope you found this post helpful; please share it with anybody you know who might be interested in investing in industrial real estate. Thank you for taking the time to read!